Monday, October 17, 2005

Big Government Reprised

Well, there was quite a lot of constructive debate following my post about "big government". Apart from the comments on the post itself, I've had some interesting discussions with various work colleagues and acquaintances, and an excellent chat with some guys who I think were National Party strategists down at the pub the other Friday night.

Amidst all the debate, the original point got a little muddied--and perhaps I didn't articulate it particularly clearly in the first place. My contention was that talk of "big government" is propaganda jargon imported from US (along with other irritating tropes like "flip-flopping"), and tends to be deployed in a hypocritical way.

In my view, the latter actions are bigger and uglier examples of government intervention. Yet somehow they don't tend to get acknowledged as "government".

It turned out that everyone to whom I put this agreed with me. "Oh yes, it's hypocritical--the government should back out of people's personal lives as well" said my work colleague. "Actually, I think all drugs should be legalised" said one of the National Party supporters at the pub.

Which is fine, except my other point was that these kind of cross-the-board libertarian principles only seem to survive in universities, pubs and other theoretical settings. As I argued in my original post, there's a mysterious process by which those who have to actually make policy see their social liberalism and internationalism rapidly eroded (see ACT's "zero tolerance" crime policy and their promise to double defense spending, for example).

But my interlocutors remained convinced that in New Zealand there really was a distinct creature called Big Government and that its indulgent master was the Labour-led left. It seemed to keep coming back to Working for Families. People got hot under the collar about "putting middle-class New Zealanders on welfare". They railed against the high effective marginal tax rates created by WFF, which are a "disincentive to working harder and earning more".

I have a certain amount of sympathy for this point of view, but don't think it's as clear cut as people make out. True, the base WFF package involves all kinds of forms that have to be filled out and chunks of personal information fired off to Work & Income and the tax department. I have to admit, it's welfare, and somewhat byzantine welfare at that.

And, as my sister and her family have discovered, when it ends up involving ongoing negotiation with petty officials who don't seem to pick up their phone messages or communicate with each other, it can create more grief and hassle than it's worth.

But while there's some technical and semantic arguments1, the big extension to WFF proposed by Labour can plausibly be presented as a simple tax break. In fact, with a little rejigging and rebranding, the whole WFF package could be sold as "lower-to-middle income tax relief". Credit where it's due--Peter Dunne and United Future have done some thinking about how this might be achieved.

The real difference in the NZ election was that the neoliberal(ish) National party wanted to spread out its tax breaks across the population, while the more social democratic Labour approach was to direct all relief at lower to middle-income families.

Given that it's now de rigeur to commodify everything, you could argue that this is a "targeted incentive to encourage investment in offspring". What economic activity definitely needs to be encouraged in New Zealand, and subsidised if necessary? Given the aging population, declining birth rate, slumping net migration, and the need to have somebody to do work and pay taxes in the future, creating kids is a sine qua non.

And while people are known to breed while poor, there's good grounds for thinking that extra money available for education, a healthy diet, and a warm house might help produce higher-quality adults in the future--a good outcome for society as a whole.

Yes, as WFF abates, it does produce high effective marginal tax rates--but they are something you will get with any kind of targeting. It's worth mentioning that the community services card, a targeting tool introduced by a neoliberally-minded previous administration, didn't abate at all.

When you reached the threshold it simply cut off, meaning that people on very low incomes who had expenses subsidised by the card (such as health care) could be faced with marginal tax rates of over 100% when their income increased slightly. Much of the byzantine bits in WFF are actually intended to avoid this sort of thing happening as people move into work from being on a benefit.

And let's be realistic--is there really a linear relationship between working harder and earning more? It would be nice if this were true, but for many people wages depend on factors beyond their control, such as what their employer can afford, or is willing, to pay.

I'm not arguing that WFF is a panacea. The jury is out on which system of tax breaks would produce greater happiness and productivity. And beyond that, there's a philosophical debate about how society assigns burdens and rewards.

But what I don't believe we have is "big goverment vs. "less government". As in the US, both sides want government to do about the same amount, but have different priorities. These phrases should be acknowledged as loaded, and should not be passed off by op-ed writers as objective characterizations of party policies.

1 comment:

Tony
said...

Well, the Working for Families may be viewed as a Tax Cut by some, but the difference is much more than semantics to many. A Tax Cut is being allowed to keep more of your earned income as of right (and to use it as you see fit) whereas a benefit (like WFF) is a conditional subsidy given to meet a perceived need.

I note that Politicians (who make up these laws), on the whole, are very different people from the average parent. Politics is very time consuming meaning those involved in the process of developing policy often are not parents. Even those who have kids are often not actively involved with bringing them up kids. And, of course, thier personal income is already very high.

Peter Dunne does have some good ideas in relation to families. For instance, he wants to revive income splitting for income tax purposes. This properly recognises that the bread winner for a family is not fundementally working for themselves, but their family. It also reconises the reality that a stay-at-home parent substantively improves the childs ability to become well-rounded member of society. It also recognises the contribution the stay-at-home parent contributes the effectiveness of the earning parent to be more effective AT WORK (and so probably earn more). NOTE this is recognised by the courts in divources settlements, but not by the government.

In summary, while political debates are often about the merits of the objectives, the method of implementing the initiative is also important. This is no better shown by the ongoing discussion on Tax Cuts versus Benefits as the best way to help the Middle Class.